New guidance fails to refocus gilt market on UK outlook

Once again, UK asset prices appear to have been influenced more by overseas events than domestic developments. Despite further signs that the UK economy is growing at a faster rate than the rest of the G7, UK equity prices have fallen broadly in line with those overseas. And the drop in gilt yields appears to have at least partly reflected a flight to safety following renewed concerns about emerging market economies, rather than a sign that the Monetary Policy Committee’s (MPC’s) new guidance has convinced markets that interest rates will remain on hold for some time to come. For all of its best efforts, the MPC continues to have only a very limited degree of success in influencing investors’ medium-term interest rate expectations.